Wealth Creation in the Stock Market (1926–2019)
Only 4 Percent Of All Publicly Traded Stocks Account For All Of The Net Wealth Earned By Investors In The Stock Market Since 1926.
Dear Investors,
The U.S. stock market has been a cornerstone of global wealth creation for nearly a century, serving as a powerful engine for economic growth and a transformative force for investors.
However, this monumental wealth creation is neither evenly distributed nor consistent across industries and time periods.
Understanding the intricacies of this phenomenon reveals three critical dimensions:
The extraordinary concentration of wealth creation in a select few companies
The divergent performance of industries
The historical trends that have shaped the market over time
Spanning nearly a century (1926–2019), Hendrik Bessembinder’s study unveils a startling reality: a disproportionate contribution of a small number of companies to overall market returns.
"Only 4 percent of all publicly traded stocks account for all of the net wealth earned by investors in the stock market since 1926"
—Hendrik Bessembinder
A staggering 57% of publicly listed firms from 1926 to 2019 reduced shareholder wealth, while a mere 0.32% of companies accounted for half of the total $47.38 trillion in wealth generated during this period.
This skewed distribution underscores the “winner-takes-all” nature of modern markets, with giants like Apple, Microsoft, and Amazon dominating the narrative.
Equally compelling is the performance of industries within this broader framework.
While technology firms have garnered the spotlight, sectors like telecommunications, healthcare, and energy have consistently outperformed expectations relative to their representation in the market.
These findings illuminate the diverse pathways through which shareholder wealth has been created, highlighting industries with untapped potential alongside established leaders.
A historical perspective reveals how periods of growth and contraction have shaped the evolution of wealth creation.
From the devastation of the Great Depression to the explosive growth driven by technological innovation, the U.S. stock market has weathered and thrived through various economic cycles.
Recent years, particularly 2013 to 2019, have witnessed unprecedented acceleration in wealth generation, driven by the rise of internet-based economies and technology titans.
This exploration of the concentration of wealth, industry-specific insights, and historical trends offers a comprehensive lens through which to view the dynamics of wealth creation in the stock market.
For investors, understanding these dimensions is key to navigating the complexities of portfolio strategy and uncovering opportunities in a rapidly evolving financial landscape.
1. Wealth Creation in U.S. Stock Market (1926–2019)
The U.S. stock market has been a powerhouse of wealth creation for nearly a century, delivering unparalleled returns to investors.
Yet, this wealth generation is far from evenly distributed.
A recent study reveals that the lion's share of shareholder wealth is concentrated among a small subset of companies, highlighting a striking disparity in performance.
The Concentration of Wealth Creation
Between 1926 and 2019, the U.S. stock market generated $47.38 trillion in shareholder wealth relative to Treasury bill benchmarks.
Astonishingly, over 57% of the 26,168 publicly listed firms during this period reduced shareholder wealth, leaving just 42% contributing positively.
Even within this 42%, the concentration is pronounced:
The top five firms—Apple, Microsoft, Exxon Mobil, Amazon, and Alphabet—accounted for nearly 12% of all wealth creation.
A mere 83 companies (0.32% of the total) generated half of the total market wealth over this 93-year span.
This trend has intensified in recent years, with five firms alone (Apple, Microsoft, Amazon, Alphabet, and Facebook) contributing 22.1% of the wealth created between 2017 and 2019.
These results underscore the "winner-takes-all" dynamic that increasingly defines modern equity markets.
Today, the concentration of wealth creation in U.S. stock markets is both a challenge and an opportunity for investors.
Recognizing this reality can help investors craft strategies aligned with their risk tolerance and investment goals.
For those without specific stock-picking expertise, broad index funds can mitigate the risk of underperformance, ensuring exposure to the few top-performing firms that drive market returns.
However, investors seeking to outperform the market might consider sectors with high wealth creation efficiency, albeit with increased risk.
Industry dynamics play a critical role in wealth creation, and understanding these nuances can empower investors to make informed decisions.
2. Industry Insights
The U.S. stock market’s ability to create shareholder wealth varies significantly across industries.
Industry dynamics play a critical role in wealth creation, and understanding these nuances can empower investors to make informed decisions.